Credit cards: Maria Bekiaris Ways to boost your rewards

A “free” flight sounds tempting ... but do run the numbers to ensure you’re getting a good deal

People love the idea of getting something for nothing. But if you’re not careful a rewards credit card could end up costing you rather than rewarding you. And it doesn’t help that many providers have now watered down their rewards programs. “The Reserve Bank changed credit card interchange regulations, which meant that the banks that issue your credit cards earn lower revenues for processing your transactions,” says Steve Mickenbecker, group executive, financial services, at Canstar. “To maintain profitability of the credit card, this has meant that they have had to cut back on the benefits you receive or charge a higher fee. Generally they have cut back on rewards programs.” Most affected are the companion card deals where you received an American Express card and a Visa or Mastercard, says Mickenbecker. “The Amex card typically earned two or three points per $1 and the Visa/Mastercard one point. The banks have closed down these products, and the replacement cards can typically earn around one to two points per $1 spend but with points tiering and capping.” CommBank, for example, is the latest bank – and the last of the big four – to drop American Express companion cards thanks to the Reserve Bank reforms in July last year.

So are rewards credit cards worth it? The answer is – it depends. The first issue to consider is whether you can stay on top of your debt. “Rewards cards can be great if you repay your card in full and on time each month but that is not everybody,” says Mickenbecker. Reward cards almost always carry a higher interest rate and fee. “So if you’re leaving debt on your card it’s a good idea to be looking for a low-rate card instead.” This was highlighted in research by the regulator ASIC, which found that credit cards can be a debt trap for more than one in six consumers. It estimated consumers could have saved about $621 million in interest in 2016-17 if they had used a lower-rate card. The next question: how much do you spend on your card. You do need to spend a fair bit to get any value. “It takes an extended period to build up reasonable rewards, in particular for flights, on annual spending much below $24,000,” says Mickenbecker. “Aggravating this, rewards cards usually have higher annual fees. There are exceptions, however, with no-fee rewards cards and some cards that give you a free annual flight.”

If you decide a rewards credit card is for you, make the most of it to maximise the points you earn. Here are seven ways to do it.

1 CHOOSE THE RIGHT CARD

The obvious place to start is to make sure you have the right credit card. Think about how much you spend each year, what type of rewards you are most likely to use and whether the card

costs are less than the rewards. “Choosing the right card can maximise the earn rate of points and the value of the points,” says Mickenbecker. “Cards typically earn as little as 0.5 points of $1 spent or as much as 2.5 points. The value of your points on redemption and the annual card fee also come into the equation.” (For more on choosing the right card see breakout.)

2 KEEP AN EYE OUT FOR SIGN-UP BONUS OFFERS

If you’re thinking about getting a new rewards credit card, then look out for bonus offers. Some providers offer bonus rewards points when you apply for and are approved for a certain credit card or you spend a certain amount in a certain period. If you’re not getting the best deal consider switching.

“Bonus point offers are definitely worth considering as they are a quick way to get a cheap flight,” says Steve Hui, founder and CEO of iFLYflat. It could take years to earn the amount of bonus points you might be able to get for signing up. For example, at the time of writing St.George is giving away 50,000 bonus points to customers who sign up for a new Amplify Platinum credit card and spend at least $2000 on eligible purchases made with the card within 90 days of card approval. As the earn rate is one point per $1 spent you’d need to spend $4167 a month on the card to earn those points in a year.

3 SPEND AS MUCH AS POSSIBLE ON THE CARD

“Put as much as you can on your credit card,” says Hui. Look at ways to use it more. Use it for everyday purchases even if they’re small. For example, you can earn more points by making other small changes, such as downloading a coffee app and linking it to your card or linking it to your PayPal account and using it for online purchases.

There are provisos for putting all your spending on the card, warns Mickenbecker. “Don’t direct spend to your card if there is a surcharge for using it, as for most cards the points increment does not cover the surcharge. Importantly, never spend more to earn more points – it doesn’t pay and can hurt your finances.” Of course, you should only spend up big if you know you can pay off your card in full – there’s no point spending up big just to be hit with a big interest bill.

4 PAY FOR GROUP BILLS

Another option suggested by Hui is to use it to pay for group bills such as dinner with friends or even movie and concert tickets. Pick up the entire tab rather than splitting it and ask your friends to transfer their portion to you.

5 DOUBLE UP ON POINTS

Find out if there are any businesses partnered with your rewards card that let you earn points at a higher rate. For example, you may be able to earn three points for every $1 by shopping at a particular store. If you have a supermarket-branded credit card you may be able to earn points through the supermarket program as well. For example, Woolworths shoppers can earn frequent flyer points using the Woolworths Rewards

program and if they use their frequent flyer card they can earn points that way as well.

6 ADD A CARDHOLDER

Make your partner a secondary cardholder. They’ll get their own card and if you get them to use the card for all their purchases too this will increase your earning potential. See if a fee applies and that it’s not too high.

7 PAY ATTENTION TO THE EXPIRY

Check the rules about rewards expiry and make sure you use your points. For example, Qantas has a “soft” expiry and your points won’t expire as long as you earn or use Qantas points through your account at least once every 18 months. Hui says it can be as simple as making the smallest possible purchase using your points so that you keep them alive. SPEND YOUR POINTS So you have followed all these tips and built up a decent number of points. Your next decision will be how to get the most bang for your buck when you redeem your points. If you have been building up points in the hopes of scoring a free flight, Mickenbecker says international is generally better value than domestic. “But watch for taxes over and above the points,” he warns.

You may have heard that upgrading to business class is the best way to use your points but Hui says that is no longer the case. “My view is that outright business class redemption is the best way to use your points,” he says. Upgrades used to be the best way but they now cost about 90% of the points needed for a business flight, he adds.

Hui offers this example. A flight from Sydney to London in business class will cost you 256,000 Qantas points, plus you’ll have to pay taxes. A discount economy ticket to London will set you back about $1800 plus you’d need to use 240,000 Qantas points.

If you’ve been focusing on rewarding yourself with a little shopping trip you’ll need to choose between vouchers or merchandise. The surest way to make sure you’re getting the best value is to calculate the “point currency”. This is basically how many points you need to get $1 of a reward. So, for example, if you need 7000 points to redeem a $50 gift card, the point currency is 140 for each $1.

You can use the point currency to compare rewards – the lower the number the better. So let’s say 7000 points gets you a $50 gift card (140 points) or you could get a $60 toaster for 8000 points (133 points). You’d be better off getting the toaster. Or if you could get a flight from Sydney to Melbourne worth $200 for 17,000 points, the point currency is 85, so that definitely comes up trumps.

If you’re thinking about using your points for merchandise, find out the best price you can get the item for at a major retailer. That toaster you had your eye on might be on sale for $50 so you might consider redeeming your points for a gift voucher to that store to take advantage of that great price. If it is a special, though, you will need to make sure you’ll get the voucher before it goes back to the normal price.

‘ Check the rewards expiry – the smallest possible purchase can keep them alive